Century Plyboards (India) Limited (532548) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Century Plyboards (India) Limited Q1 FY '22 Earnings Conference Call hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, sir.

Thank you. Hello, everyone. Welcome to 1Q FY '22 Earnings Call of Century Plyboards (India) Limited. We have with us from the management side, Mr. Sanjay Agarwal, Managing Director and CEO; Mr. Keshav Bhajanka, Executive Director; Mr. Arun Kumar Julasaria, the CFO of the company; and Ms. Nikita Bansal, Executive Director. Thank you, and over to you, sir, for your opening remarks.

Thank you, Dhruv. I think I'm audible.

Yes, sir.

Okay. So good afternoon, friends. I, Sanjay Agarwal, MD and CEO of the company, along with Mr. Keshav Bhajanka, Executive Director; Ms. Nikita Bansal, Executive Director; Mr. Arun Julasaria, CFO of the company; and we join together in welcoming you to the Q1 FY '22 results call of Century Plyboards (India) Limited. Hope you and all of your family members are safe and healthy during the pandemic times. As stated in previous quarter calls, this year has started with the impact of second wave of pandemic. Despite the second wave, we have delivered good results, which are better than our own expectations, with second half of June doing much better with the fading of second wave. It is heartening to note that the residential real estate sales of major 9 cities in India in Q1 FY '22 have only dipped 18% quarter-on-quarter, despite May and first half of June being almost a washout. We, thus, believe that the demand for wood panel sector is likely to remain positive in the times to come. We are doing our working internally and will come out with a detailed road map for the next 3 years in the forthcoming Q2 FY '22 conference call. July '21, too, has shown promise, with Plywood showing a strong victory, followed by Laminate and MDF segments. Our recent initiatives, ILP, SFA, ViroKill technology, fire-proof plywood and [ roping in ] of Vector agency and BCG for removing the inefficiencies in the system to drive quality earnings growth over the next 3 to 5 years. Our MDF brownfield expansion at Hoshiarpur has been delayed by 1 quarter and is now expected to come onstream by H1 FY '23. Our South MDF CapEx has also been deferred a little bit due to delay in getting requisite approvals on account of persistent second wave in the region. Input costs in all the segments have gone up significantly over the past few months. We have largely passed on most of the input costs increased by taking in price hikes across product segments. As far as raw material security is concerned, while our Myanmar plant is not doing so well due to the coup in Myanmar, we have now started sourcing face veneer from our recently commenced face veneer unit in Gabon in Africa. Our working capital expense increased in Q1 to 108 days, and that is largely because of inventory days, which has gone up by 43 days. These inventories have already started coming down with demand opening up in July and would further come down by end of Q2. Happy to share that despite the challenging scenario, our team has done an excellent job in maintaining a strict discipline on the receivables, which has been maintained at around 52 days. Despite higher working capital days, our net debt stands at near INR 48 crores at the end of Q1 FY '22. We have also launched a TVC for laminates yesterday. With these remarks, I hand over to CFO, Mr. Arun Julasaria, to take you through key financial figures, post which we will be open to your queries. Thank you.

Thank you, sir. Good afternoon, ladies and gentlemen. First of all, I would like to mention customary disclaimer that this con call is just to discuss company's historical numbers and future outlook. In no way this should be construed as an invitation to invest in the company. Results for the quarter, along with detailed analysis, has already been mailed to most of you and also posted on stock exchange and company websites. So just taking you through the macros, our top line on Y-o-Y basis have grown by 124% to INR 448.8 crores against INR 200.6 crores last year. The EBITDA margin was 14.7% at INR 66.1 crore against INR 5.4 crores in the same quarter last year. Profit after tax by INR 33.8 crores against a loss of INR 8.49 crores. In the last year, all segments performed well. Quarter-on-quarter performance had declined due to second wave of COVID, and we expect the same to normalize in quarter 2. The July month has been encouraging. On balance sheet front, our net worth is now close to INR 1,300 crores. Return ratios and working capital cycle were impacted due to impact of second wave of COVID. We continue to look at the future with optimism and better performance every quarter. With these words, I open the conference call for questions and answers. Thank you.

[Operator Instructions] Our first question is from the line of Hrishikesh Bhagat from Kotak Asset Management.

So my question is first related to MDF. So if I look at the margin performance, there has been an improvement sequentially despite a decline in revenue. I understand that is an impact of price hike. But just wanted from the directionally -- incrementally from here on, I think considering the delay in capacity announcement of new capacity, if there is scope for further improvement in margins in MDF. Or do you think that further price increase will or margin improvement will look difficult and will attract new supply from other regions?

You see MDF is an area where supplies from other regions cannot be too high. So everybody, if I have some excess material, I will send to other zone. So I don't expect too much of filtration from other zones. And as far as margin is concerned, see, we follow a system. We tactically target a particular kind of an EBITDA, and we try to follow it. At sometimes, it slides a little bit, at sometimes it goes up a little bit. But we try to follow the EBITDA. But you will see that after the initial hiccups and the changes happening in the industry, the EBITDA is mostly hovering around, I think, 28% -- 26% to 28%, actually. So even in coming times, yes, there may be some price rise due to the input increase that we have been able to pass on, as and when possible. So I don't think there will be much variation as far as margins are concerned.

Okay. Okay. The second question is on the CapEx on South MDF. Now I know the CapEx number is yet to be frozen. But historically, we have been speaking about INR 550 crores, INR 600 crores kind of CapEx. So just around this, is there a likelihood that this CapEx number could remain upside or there is an upside risk to the CapEx number with the recent increasing input cost? And secondly, has there been any work started on the ordering front for the South CapEx also?

So no, I don't think there's too much of a risk of an increase in the overall project cost. And yes, most of the machinery has been finalized, but the orders have not been placed yet.

Our next question is from the line of Chetan Gindodia from AlfAccurate Advisors.

Sir, my question is primarily with respect to our demand. So we saw our demand impacted in the first quarter. So can you explain what was our closing run rate for June quarter in the Plywood segment maybe? And also what are the demand...

I can't hear your question actually. It's not -- your voice is not clear. Would you be clearer?

Hello. Is it better now?

Yes.

So sir, my question is with respect to our Plywood segment. So what are the demand trends that the company is seeing in the June quarter and also -- June month and also in the July month. So July month, have we crossed the last year levels? And how are the demand trends now picking up after lockdown?

Nikita?

So definitely, the recovery in June was much, much faster and much better than what we saw last year. July, also the recovery is very, very good. And we hope that going forward, we will see this recovery and succeed in growth in the future.

Okay. Okay. And with respect to our MDF margins. So we had earlier alluded that the South CapEx would be your slightly lower margin business. So -- and now that the Hoshiarpur plant has also been delayed, so are we expecting any margin pressure on the MDF business with increasing supply?

No, no. But right now, you see because the increase in supply is not happening, so I don't see any margin pressure. But yes, as and when the plants come up, which is a history in every product that as a new plant comes in, there will be -- for some time, there will be a margin pressure. But right now because these plants are delayed, so they are actually a better thing in the other way, that yes, the quantum is not coming up. But whatever existing we have, the margin pressure will not come on then.

Okay. Okay. And also, sir, you had earlier said that the Laminate business margins of 19% and then 22% that we had seen in Q3 and Q4, these margins were going ahead the normalized. So Laminate business, how do we see the margin now? There was increased cost pressure here. So have we passed on the cost increase?

Yes. Up till the latest round of increases, we had passed it all on in the last quarter itself, but melamine has again spiked and a couple of other raw materials are looking on the high. So we are looking to take another price increase in the very near future. Sustainable margins in Laminate, as we have stated earlier, are likely to be between 15% to 17%, and we are working towards the same, and we are very confident that we will be able to achieve this.

We'll take our next question from the line of Rahul Agarwal from Incred Capital.

Just 2 questions. Firstly, could you quantify what is the price hike you took in the first quarter across your 4 segments?

All the segments. So you see, MDF, we have taken a price rise of about 4%. And in certain 2 thicknesses, we have taken a price range of about 15%. So average price hike may have been about 6% also. And as far as Plywood is concerned, we have taken about 2% price rise. Laminate, I think, Keshav will be able to tell you better.

Laminate has taken a 3%-plus price rise in the last quarter.

Got it. Anything on the Particle Board side?

Particle Board, we have taken only, I think -- 3% price rise in the Particle Board.

Got it. So the reason for basically very high realizations in MDF and Particle Board quarter-on-quarter, is it broadly price hikes? Or is it anything else? Was this number normal?

Actually, Particle Board even I have not been able to assess the exact reason. The price hike is not really too high. But we see a little bit also higher realization there, but I've till now not been able to see why.

Prelam share....

The prelam share has gone up a little bit. That makes a difference. So you can say the value-added products are fading a little bit more.

So any reason for MDF price hike? I mean the realization being higher by 10% Q-o-Q, like is that normal?

Actually, price rise is 4% and 2 thicknesses we have taken a higher price rise of 16% or 15%, but even then that does not make for a difference of higher realization. So the reason can be a little bit of a product mix where actually we are -- our Premium Plus product and the pre-laminated MDF board. So I do not have the quantities. But yes, those 2 products make a difference to the overall realization. Because our Premium Plus actually is costlier by more than 30% or 25%. And so is the pre-laminated MDF also. So if they increase by even a small percentage, it makes a good difference to the total rise.

Got it, sir. And lastly, any comments...

Plus I don't have the exact numbers at the moment, so I cannot give you the number.

No problem, sir. And just lastly, on the Sainik performance, if you can comment qualitatively how did the segment do both in water-resistant and waterproof?

Sainik waterproof [Foreign Language].

Sir, actually, usually, we don't like to share this information, but both have recovered well and are doing well.

Our next question is from the line of Aasim Bharde from DAM Capital Advisors.

Sir, I have more broader industry-level question. The first one is on the antidumping duty decision on thin MDF that went against the industry. So could you tell us what may be your thinking of the government on rejecting this one? And does it provide any hints on what the government may be thinking on the other antidumping duty and the CVD recommendation?

See CVD is still in the process and no final decision has been taken as far as CVD is concerned. And antidumping, very frankly, both would not have come. That was also very clear in our mind. Yes, we were trying for both. So we are still expecting the CVD to come in. But very frankly, if you really see today, if you look at Green, they are able to export much more MDF right now from India. So immediately, as it is, all these duties are not going to make much of a difference to us. Yes, in a long term, any such duties help the industry. We'll know 2 things about it. And it will help more the people who are into South, then because of the easy approach from exporters from other countries. But to bring it to North India to where we are operating right now mostly, it is not that hard thing to us, very frankly. For the long term, yes. And I believe that if it does not come today, we will again try maybe in 6 months' time or 8 months' time. We'll again try and we will be able to probably get it. CVD should be -- the results should come very soon. Now within the next 10, 15 days, I think we should have them here.

Just wanted to understand, would there be any like scenario where the government may end up rejecting CVD as well? That's why actually I was asking that what may be the thinking behind the government decision?

You see, the thinking behind the government, in their mind, is very, very difficult for me to comment on that, very frankly. They may be thinking that right now that they might have got the -- export is happening, so they might have learned about it, so then why do you need the protection. So all those thinking may be going on, we don't know. And CVD may be rejected because it is completely Finance Ministry's -- where everything is now, it lies with Finance Ministry, all the groundwork has been done. Every analytical position has been done and now it lies with the Finance Ministry for the approval. So it may or may not be approved, yes, because it's absolutely open until it happens.

Sure. Sure, sir. Sir, second question, actually, just for my knowledge...

What I said, you must understand that actually at this juncture, it is not going to affect the industry too much.

Yes, I understand that. Right now, imports are also looking at other markets. But there's that -- eventually when markets have overall come back into a steady-state balance, things may or may not -- yes, I get that, sir.

Yes. And you see the prices of region mostly because of the logistic cost and the logistic cost from other countries to India are not going to come down so fast. The shipping industry is in an absolute high after maybe 10 years or so or maybe 12 years or so, actually, now they are at a high. So the -- and these products are affected highly by logistic costs, actually. Only the logistic costs have gone up by $40 per cubic meter. They are not going to come down. So I don't think until and unless the new plants come into production, there are going to be much effect on our industry.

Sure, sure. And on MDF pricing, I just wanted to understand, in a scenario where raw material prices start to decline, would be the industry also be compelled to pass on the benefits? Or is it like a pass-through here or would you...

This is never -- quite frankly, this is never a job of cost versus the price. It all depends on the market position. If the costs are rising and the new plant comes up at that time, still the prices will go down actually. And the margins will shrink a little bit for some time until and unless the demand catches up. So this is -- basically, the pricing is a job in today's time on the market scenario, on the demand-supply scenario actually. And if the prices go down, the cost of raw materials go down, but the demand goes up, the prices will go up. Yes, what we try our best, as and when the prices go up, we try -- cost price is lower. We try to pass it on. But that also depends on -- actually today the market is good, so we are able to pass it on. And the market would have been bad, we would not have been able to pass it on. Because MDF is still an industry, which is maturing. You see, Plywood, we have got a branded material. So we are able to pass on as and when the cost increases. In MDF, it's still the branding is happening. It will take some more time before this cost passing on can become an easy job.

Got it. Sir, and last question on Particle Board. Sir, any commentary on the space in general? And what Century's long-term plans are in this space?

I think we have spoken, I think, every time because going forward, we are looking -- we are very positive on Plywood. So we are expanding our plywood capacity also. We are expanding on MDF also. We may -- we have not decided, but if we go for the UP project, then we will be actually expanding on Particle Board also. So we are very positive in this space. So going ahead -- and you know that we have finalized the plant and Hoshiarpur is coming up within the H1 next year. And South plant also, we are very serious. We have finalized everything, the machinery, et cetera. But yes, because of the COVID, the land and the government approvals are still pending. They are very positive.

Our next question is from the line of Sneha Talreja from Edelweiss Securities.

The question is more related to the current demand scenario. I just...

Ms. Talreja, sorry to interrupt. If you're using a headphone or earphone, can you just take it off and speak on a handset mode.

Is it better now?

A little bit.

Yes.

Yes. So my question is more pertaining to the current demand scenario. You rightly said that from June onwards, it has started to pick up and July also is seeing significant pickup. In last quarter, you definitely guided for around 12% to 15% also growth in Plywood. And again, a double-digit sort of growth for Laminate. Looking at the current scenario, I just wanted to know the outlook for all the segments.

I think I spoke before also on this. We are -- outlook, are you looking at a 2, 3 years' outlook?

Maybe 2 to 3 years.

Or the immediate outlook?

I think both should do, sir.

Both. Okay. So immediately, yes, we are positive and the markets have really revitalized in all the sectors, I should say, whether Particle Board or MDF or Laminate. I think all the markets have revitalized very well. And as far as the long term is concerned, I think by -- I spoke in my speech also that by next quarter, when we speak, at that time, we will have a road map actually, which will be present to all of you.

Sure. But in the near term, you are positive on a double-digit growth rate, which you've already guided in the last quarter?

Actually, this double-digit thing, very frankly, the things are in such a situation that even -- I think we had a triple-digit growth from last quarter in Q1 to this Q1. So at this juncture, to tell you whether double-digit or triple-digit or single-digit, has become -- very frankly, it does not matter right now. Doesn't matter last year, whatever we did, I do not know what is the kind of growth the company will get or any company will get, very frankly. I hope this stabilizes more and then next year, we can talk about the single-digit or double-digit activity.

Sneha, one more point. The third wave is a completely unknown quantity, right? So because of that, it becomes a little difficult, as Sanjay has already said, we are very bullish going forward. But again, these are certain things that are outside of our control.

Sure. My second question is actually related to the MDF segment. Just wanted to know your percentage of sales coming in from the West market. And secondly, you definitely highlighted with more number of players coming in, you see pressure on margins coming up. So that was second -- that what kind of pressure do you see on margins coming up? And thirdly, since your capacities are getting delayed, would there be a challenge in supplying material in, let's say, next year before your [indiscernible] new South plants come up? Or is there any arrangement that you can work with some other players for the time being to fill in the market. That's the third one.

Sneha, at this juncture, nobody will be ready to supply to us because everybody -- if I am getting -- Century Ply is getting this kind of a market reaction and we are able to sell, then nobody else will actually want to supply to us. Everybody wants to stay with their markets. So the question of getting the supplies from anybody else does not stand right now. Number two is actually whether the market will have shortage of product. So you see -- you've seen in South, the Rushil has just come up. And I don't think they have been able to consume their total capacity. So I really don't see much of a shortage, but as far as North is concerned, I see that North presently does not have a shortage of supply. And by the time there will be shortage, I believe that our plant will be in production, say by H1 next year. So our plant will be in production. As far as Southeast is concerned, by the time the capacity created by Rushil is completed, I think our plant will be almost there to come up, so that is about 1.5 years from now actually, we should say that, that is the situation. So I don't see that there will be a shortage of raw material. Yes, there is always a little bit of either we are -- we have an excess production or we have a little shortage. So that situation would go on depending upon the plant utilization because of internal problems. Otherwise, I don't see much of a -- neither downturn or nor any uptrend.

Sure. Sir, lastly, in case you can just provide the geographical mix for your MDF sales?

Geographically, you see we're usually doing 70% sale or 72%, 73% sale in the North. Rest of it is divided in East, South and West. And if you ask me a question that why do we supply from outside North, there are products which are very, very good, which pay us very good margins and which have got very good sale in other zones. And we have identified thicknesses and we have identified products in other areas, which we sell into other areas. Yes, along with that, some regular product also goes, but it is always good to be in the market. If you once go out of the market, then again when our plants come up, at the time to get into those markets will be very, very difficult. So we try our best to sell most of our product in the North only because of logistical costs.

Our next question is from the line of Chirag Shah from Valuequest.

Sir, in terms of your new capacity coming in. By when, North plant you expect to start commercial production? And South, you said there's a delay. So by when currently you are expecting that this plant will be online?

With regards to North plant, we'll be in production in H1 of next year. The basic delay, as you all know, is due to COVID, and you can't foresee in circumstances that have been caused by COVID. With regards to South plant, it is taking a little longer because getting the government licenses, et cetera, et cetera, is proving to be a little tricky because of the COVID scenario again. But I'm sure that once we are able to get the licenses and the land approved, post that within 18 months, we shall be able to commission the capacity.

Okay. And North when you say H1, we should assume around Q2 end. Is that a fair assumption?

It will be within Q2. We are going to try to bring it early. There is a little bit of variability at this point in time.

Got it. Secondly, sir, on MDF annual volume guidance, if you can throw some light. How is the demand trend, et cetera? Because if you see Q4, you were running at almost optimum utilization. I understand in Q1, there was disruption because of which volumes got impacted. So currently, looking at the situation, how you look at annual volumes panning out for this year?

So for this year, you're asking. You see, we have our plans of our AOP, Annual Operating Plan, but then the first quarter has been washed out. I think June was, yes, we were practically -- not exactly back to normal, but, yes, quite near to normal. July has done better. August is doing better. Again, a third wave is expected. So do you think that it will be wisdom on my part to actually give you a number right now? I don't think so. This will all -- whatever I give you has got no base.

Right. Okay, sir, can you help me...

We want to do much better. And the factory is running at full capacity at the moment, even if we are -- even if there is some gap in the manufacturing and sales, so we increase our stock or decrease our stock accordingly, but we try to use the manufacturing capacities to its maximum.

That is helpful. Sir, in terms of realization, so whatever realization you did in this quarter, is it a sustainable number going ahead?

See, again, I think I have told that we go by -- always, we fix a percentage, and EBITDA we have fixed for India to 26% to 28%. So we will hover around that, you see. And the prices, et cetera, everything will depend on the market. We try our best to maintain between the 26% to 28%. When the new plant will come up, at that time it may go a little down also. And I'm sure it will go down actually, very frankly, which will, again, over a period of 1 year or 6 months, then the capacity will be consumed by the market. It will again -- and you have seen all that ups and downs of MDF, you have seen. When our plant came up when the Green South plant came up at that time, the EBITDA really went down. We all had a price decrease in the market. And then again, we have been able to come up. So this cycle will keep on repeating itself.

All right. And just lastly, sir, what was the domestic consumption of MDF in FY '21?

In FY '21. Very frankly, I don't have the number at the moment.

About 1.3 million CBM.

It's about 1.3 million CBM. But very frankly, I'm not so sure. These are all numbers, which we actually do an estimate sitting on our table. Around INR 2,500 crores and 1.3 million CBM, but then I cannot really say that, yes, this is the number.